PC recommends annual salary indexation

To protect real income of the public servants annually from inflation, the Pay Commission (PC) has recommended an annual salary indexation of five percent or inflation, whichever is lower.

In an earlier interview with the Kuensel, the chairman of the fourth PC, Governor of the Royal Monetary Authority, Dasho Penjore, said, “To avoid future ad hoc pay revision-a political agenda, we tried to index pay revision to inflation tolerable to five percent per annum.”

According to the report, the annual indexation method was common among developing countries in early 1970s to ensure real level of income in view of the rising consumer prices.

The report also stated that indexation was more appropriate method to compensate partially or fully the rising cost of living on annual basis, rather than waiting for spikes with change in government.

This approach, therefore, was recommended to minimise the impact on the living standard of public servants due to rise in the price level of essential commodities and house rents as a result of one-time revision of the salary.

In keeping with the state of economy and inflation level, the Commission recommended maximum indexation at five percent and minimum at two percent.

This means, for instance, if an annual pay indexation of four percent is implemented, two percent of the starting pay shall be paid as lump sum annual increment given in the recommended pay scale. While the balance indexation of two percent shall be determined on the respective basic pay on annual basis and provided as lump sum for cost of living adjustment, but shall not be added to the basic pay.

With the Commission’s proposal for indexing pay revision to inflation, many civil servants feel that this should be commended.

Civil servants feel that although the amount may still be insignificant, this is a good move because pay revision will no longer be used as a political agenda.

Moreover, revising salary from time to time will maintain real content of salary income in view of the rising consumer prices.

According to some civil servants’ recommendation, two to five percent of the previous basic pay shall be paid as lump sum annual increment, rather than determining on the starting basic pay.

“This cumulative annual increment will motivate and retain civil servants in the service longer as well as they will be paid more as they serve longer.”

However, not all civil servants seem to be content with the proposed method.

They say that implementing a uniform annual salary indexation percent across the board will again benefit the ministers, parliamentarians, and top civil servants and the amount will remain more or less same to the public servants at lower level.

Should the commission commend the method, implementing lump sum pay indexation than in percent will be fairer as well as benefit the lowest level of public servants, according to them.

In order to lower the inflation rate, some recommended revising rent increment of the Tenancy Act.

The section 31, sub section (e) of Tenancy Rules and Regulations of the Kingdom of Bhutan 2018 states: “The rent shall not be increased before two years from the date of last rent increment or from the day of which a tenant occupies the house and the increment shall not exceed 10 percent of the monthly rent.”

As many civil servants claim rent increment every two years as a major driver of inflation rate, they recommend that it should be taken into consideration while recommending housing allowance and indexing pay revision.

Some felt it is important to set a ceiling in the house rent.

To ensure that the proposed salary revision does not undermine the long-term fiscal sustainability and economic stability of the country, the Commission has proposed revenue enhancement measures.

Modernising the sales tax regime with implementation of a smart GST system, revising the green tax on fuel, revising the Sustainable Development Fee (SDF) of USD 65 on international tourists and Nu 500 per head for regional tourists were some of the recommendations.

Chimi Dema

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